ACCT 2121: Ch 7.
Problem
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Problem 1
Angel’s Sausages begins business in March. In planning his business, Angel sets the
following materials standard: Each sausage should take 250 grams of pork, and pork should
cost $10 per kilogram, therefore each sausage should contain $2.50 of direct material.
In March, Angel purchases 80 kilograms of pork for $750. Angel makes and sells 300
sausages and has 2 kilograms of pork remaining on hand at the end of the month.
Required:
Compute the company’s direct materials price and quantity variances.
Solution:
AP of pork = 750/80 = 9.375
AQ for DM Price Variance is actual quantity of purchase. → 80kg
AQ for DM Efficiency Variance is actual quantity of usage. → 80kg – 2kg = 78kg
SQ is Standard direct inputs for actual quantity outputs = 300 sausages * 0.25kg
DM Price variance = (AP-SP)*AQ = 80*(9.375 – 10) = $50 F
DM Efficiency variance = (AQ-SQ)*SP = ((80-2)–300*0.25)*10 = $30 U
Problem 2
Antonios’ Bikes makes fixed gear bicycles. The company set the following standards related
to labor: Each bike should take four direct labor hours to manufacture at a cost of $15 per
hour.
For August, the company produced 160 bicycles and employees worked 700 direct labor
hours. The company’s total labor cost for the month was $10,000.
Required:
Compute the company’s direct labor rate and efficiency variances.
Solution:
standard quantity: 4hours/bike
standard price: $15/hour
Direct labor rate variance = (AP-SP)*AQ = ((10,000)/700 - $15/hour) * 700 = 10,000-10,500
= $500 F
Direct labor rate efficiency variance= (AQ-SQ)*SP = (700 – 160 bicycles*4 hrs/bike) *$15 =
$900 U
Problem 3
The cost formulas for Trone Company’s overhead costs are given below. The costs cover a
range of 8,000 to 10,000 direct labor-hours.
Cost Cost formula
Supplies $0.20 per direct labor-hour
Indirect labor 1,400 plus $0.25 per direct labor-hour
Utilities 0.15 per direct labor-hour
Maintenance 1,850 plus $0.10 per direct labor-hour
Depreciation 2,500
Required:
Prepare a flexible budget in increments of 1,000 direct labor-hours. Include the fixed costs in
your flexible budget.
Solution:
Problem 4
Direct materials and direct manufacturing labor variances with missing data. The Shirt
Company produces cotton/polyester blend T-shirts to supply a custom T-shirt customer. The
company experienced a computer failure and some of the data were lost and could not be
recovered. The data the company were able to recover are shown below:
Direct materials used 800,000 sq. yds
Direct materials purchased 820,000 sq. yds
Direct materials price variance $24,600 F
Direct materials efficiency variance $16,000 U
Direct manufacturing labor price variance $26,500 U
Direct manufacturing labor efficiency variance $30,000 U
Standard price of direct materials $2 per sq. yd.
Standard quantity of direct materials per T-shirt 1.2 sq. yds
Actual direct manufacturing labor cost $7,976,500
Actual direct manufacturing labor rate $15.05/hr
Required:
Calculate the following:
[Link] price per square yard of direct materials
[Link] quantity of shirts produced
[Link] direct manufacturing labor hours worked
[Link] direct manufacturing labor rate
[Link] direct manufacturing labor hours per shirt
Solution:
1. DM price variance= (AP-SP)*AQ purchased
-24,600 = (AP-$2/[Link])*820,000
AP-2 = (-24,600)/820,000 = -0.03
AP= $1.97
2. DM Efficiency variance =(AQ used – SQ)*SP
16,000 = (800,000 – [Link]/output * O) * 2
8000 = 800,000 – 1.2 * O
1.2 * O = 792,000
O= 660,000
3. Actual Labor cost / Actual labor rate = $7,976,500 / $15.05 = 530,000 DLH
4. DL price variance = (AP-SP)*AQ
26,500 = (15.05-SP)*530,000
15.05 – SP = 26,500/530,000 = 0.05
SP = $15/hr
5. DL efficiency variance = (AQ-SQ)*SP
30,000 = (530,000 - 660,000 * SQ/shirt) * 15
2,000 = 530,000- 660,000 * SQ/ shirt
660,000 * SQ/shirt = 528,000
SQ/output = 0.8 DL/ shirt
